Discussion Paper Details

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Title: Monetary Policy Inclinations

Author(s): Hans Gersbach and Volker Hahn

Publication Date: March 2008

Keyword(s): central banks, commitment, ECB, Federal Reserve, policy inclinations and transparency

Programme Area(s): International Macroeconomics

Abstract: We examine whether the publication of forecasts concerning the likely future conduct of monetary policy is socially desirable. Introducing a new central bank loss function that accounts for the deviations from announcements, we incorporate forecasts about future inflation and interest rates into a dynamic monetary model. We show that the announcement of future interest rates is always socially detrimental. However, medium-term inflation projections tend to increase welfare.

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Bibliographic Reference

Gersbach, H and Hahn, V. 2008. 'Monetary Policy Inclinations'. London, Centre for Economic Policy Research.